David Pakman is a Partner at Venrock, a venture capital firm.
AdExchanger.com: Hypothetically speaking, what do you think the experience of being a venture capital investor affords you should you decide to get back into a startup of your own?
DP: Well, the best experience for building startups is doing startups, so nothing will prepare me better for doing another startup than having been involved in the three already in my past. But being a VC has afforded me a much broader view into all that is happening in tech. I was highly specialized in digital music and ecommerce before but now I have a much deeper understanding of what is happening with social data, ad tech, mobile, real-time communication and other important tech verticals. In addition, I think I now understand the process of raising VC money with more clarity and certainty than when I was an entrepreneur. Finally, my network has expanded exponentially which provides me with a greater source of superstars from which to recruit.
Looking at Venrock, what is the investment thesis today?
We focus on exceptional teams disrupting very large markets with robust technology innovation. We are investing in companies we believe can be worth hundreds of millions or billions of dollars at scale. Those investment goals require us to pursue really big ideas and less focus on incremental changes or feature additions to existing ecosystems. We have found exciting opportunities in ad tech, for example, where we see enormous disruption of the traditional advertising media markets, buying process, measurement, and most importantly, how a brand finds future customers. Other areas include everything mobile, social data, social commerce, newly imagined consumer services, and cloud/crowd companies.
Complex systems are confusing by their very nature. Ad tech is complex. Remember advertising is a half-trillion dollar market and as such many different companies live in the value chain. The migration of consumer attention from traditional media to digital media causes the inevitable shift of ad dollars to reach those customers through new channels. And that shift has opened up enormous opportunities to do things better than the past. The future of advertising is far more exciting than its inefficient past. And that brings many entrepreneurs to a market. So, I don't think there are too many companies in the space. We are still very early in the market.
You've said that the data we leave around in our social experience on the Web is "gold." Given that statement, what's your view on so-called "Social TV"? Is this the big opportunity ahead from a "data gold" perspective?
The "gold" in social data is the connections we make with others and the output of our participation on social sites (ratings, comments, blog posts, tweets, check-ins, etc.). Those connections reveal so much more about our interests and intent than things like what pages we visit, what stories we read and what interests we list in a profile. Brands care about building awareness for their products and finding customer prospects. The connections we are making online translate into valuable information to allow brands to much more precisely target prospects. It fundamentally changes how marketing is undertaken. I think the days of advertising to consumers by subject-matter proxy, basic demographics and imprecise psychographic estimations are limited.
TV is a bit of a different beast at the moment. The exciting model of TV today is the dual revenue stream cable model which is far less dependent on advertising than the networks and the local stations (who I believe have a real problem). As long as cable can maintain its oligopoly on distribution, it has a bright future. We are just starting to see folks like Netflix challenge this model and I expect it will take a long time to truly disrupt this market. As for "Social TV", there is enormous multi-screen consumer activity around TV watching today. That is good and bad. It means that TV advertisers probably don't have people's attention when they watch TV, but that has been true in large numbers since the adoption of the DVR (yet, strangely, advertisers continue to pour money into TV advertising...other than when watching live sports, I haven't watched a TV commercial in at least 4 years). But we should see new models to reach consumers around TV through other screen media. We are watching this closely.
Looking at media and its parts, what part of media is ripe for disruption - or further disruption?
Well if you accept my previous point, then you would agree that the future is not very bright for ad-based businesses that sell ads based on a simple vertical. So I am not very bullish on both online and offline media companies who build audiences by vertical subject matter. I would not want to be an investor in a traditional magazine publisher today, for example. Clearly the shift to Craigslist, online job listings and now Groupon has destroyed newspapers. And I think traditional terrestrial radio is an anachronism with very limited growth potential as we all shift to IP-delivered audio and video entertainment and news. Obviously the music industry has been decimated in the last decade. Given the massive attention shift to mobile, I think the largest new opportunity for advertising is in-stream mobile advertising. It will be an enormous industry.
What's your take on audience buying in digital today?
It is wonderfully exciting. Many companies are delivering highly targeted advertising to the consumers who most care about and delivering far better ROI than any other form of advertising today. If you are a marketer who cares about results, you love audience-based buying and aren't going back.
What's the most critical risk that any entrepreneur needs to manage?
Team. An exceptional team is sine qua non for large scale success. And the team is 100% in your control. The market and the timing are somewhat out of your control.
Is Google the unstoppable force in display? Any tripwires?
They will certainly be one of the two or three largest players in display advertising globally. But there will be healthy competition in this market and many large companies will be built.
Last question! What surprises you the most about digital advertising today?
The fact that billions of dollars in ad buying decisions are made by 24 year olds being taken to lunch.